Modi & Co grope in the dark as economy declines

The only good thing about the government looking busy about the economy is that at least it has recognized, at long last, that there is some problem. I said ‘looking busy,’ for there doesn’t seem to be either any urgency in the hectic activity on Raisina Hill or any direction in the confabulations. The very people who are primarily responsible for the mess, Prime Minister Narendra Modi and Finance Minister Arun Jaitley, are expected to clear it—a task for which they have neither the guts nor the competence.

Media reports suggest that the same old tinkering and incremental measures are being contemplated—fiscal stimulus, bank recapitalization, general revival through affordable housing, higher public expenditure and other Keynseian measures. It appears that policy makers are still unable to comprehend the magnitude of the crisis. In the first two years of the Modi government, there was jobless growth; now there is jobless slowdown.

Quarterly growth has come down from 7.9 per cent in the first quarter of last fiscal to 5.7 per cent in same period of FY18. Exports have not risen as much as the government would have liked, especially against the backdrop of revival in the global economy. The growth was a modest 8.57 per cent in the April-August period even as imports galloped 26.63 per cent, jacking up the trade and current account deficits.

As for jobs, the less said the better. The recruitment firm TeamLease Services Ltd has estimated that there could be a 30 per cent-to-40 per cent reduction of jobs in the manufacturing sector compared with last year. Manufacturing, it may be recalled, is the second largest employer after agriculture. It may also be recalled that Modi had promised 10 million jobs a year, to help the young and reap the so-called demographic dividend.

It was not a fantastic promise; more than that was actually achieved the government of his own party while Atal Bihari Vajpayee was prime minister. During 1999-2004, 60 million, or 12 million per year, were created. It needs to be mentioned here that the average growth rate in this period was below 6 per cent. On the other hand, above 8 per cent growth in the next six years of UPA rule could deliver just three million jobs, though later the situation improved a little.

There are little official data on the subject; this itself is symptomatic of Modi’s casual approach towards the subject of employment, though he had promised so much before becoming Prime Minister. Till last year his record was almost as bad as that of his predecessor’s. After the blunder called demonetization, and the hurried implementation of the goods and service tax regime, things have gone from bad to worse.

The predecessor, Manmohan Singh, has rightly slammed the government over the issue, “Both demonetization and the GST have had some impact [on GDP growth]. Both would affect the informal sector, the small-scale sector… The sectors today are responsible for 40 per cent of GDP.” Ninety per cent of India’s employment is in the informal sector, he added. He was talking to a news channel.

That this was not partisan comment is borne out by another interview that the senior Bharatiya Janata Party leader Subramanian Swamy gave to another channel. “Today, the economy is in a tailspin. Yes, it can crash. We need to do a lot of good things to revive the economy. Even a tailspin can be made to steady. If nothing is done, we are heading for a major depression. There will be mass scale [repercussions]… Banks might collapse, factories might start closing,” Swamy, who is also a prominent economist, said.

The writing is on the wall, even in the documents prepared by the government’s own organs. The solutions are also known: a big dose of reforms along with the induction of knowledgeable persons like Swamy into the policy-making and executing apparatus. That doesn’t seem to be on the horizon as He Who Must Be Obeyed places a premium on control and loyalty rather than liberalization and talent. So, the big boys—or, to be precise, the boys who think that they are big—will do a lot of meetings and mouth a number of clichés, but little is likely to be done.